Journal: True Cost of SMS = 0 But Wait….!

I just found out that AT&T (A-fee&fee?) is raising their text message pricing. When I first signed up for AT&T 6 or so years ago it cost 10 cents to send an SMS message, and it was free to receive them.

When AT&T switched to Cingular the price of sending a message dropped to 5 cents, but they started charging for incoming texts – also 5 cents. Assuming you send a message for every message you receive, this works out at about the same price as before.

AT&T came back online and phased out the CIngular brand name, and prices were again changed. This time to 15 cents each way.

More changes have taken place that I can’t quite remember. At one point text messages were 10 cents either way, and at another point they even included MMS (multimedia messages) at the same price as SMS.

As of March SMS messages on AT&T will cost 20 cents and MMS will cost 30 cents – both to send a receive.

So let’s do some math here, and figure out how much this simple transmission is actually costing us.

A standard SMS message contains up to 140 bytes (1120 bits) of data – this takes care of the 160 characters allowed in your text message. This might not make sense at first, until you realize that SMS uses 7 – not 8 – bit characters – leaving you with 128 possible character values instead of the normal 256. So 1120bits/7bits = 160 characters.

So our total message length is about a tenth of a kilobyte (.13671875 Kbytes). In terms that the iPod generation would understand – if you had an iPod with a tenth of a kilobyte you could fit 1/4000th of a song on it. I assume here and for the rest of this article that 1 song = 4 Megabytes.

If you divide 140 (the total number of bytes available to you) by 20 (the cost per message), you find that you are paying 1 cent for every 7 bytes of data. This leaves you with a cost of $1,497.97 for the 1024Kbytes contained in a single megabyte. iPod users: It would cost you $5,991.88 to transfer – not even to buy – a single song via SMS.

By comparison, I pay $50 a month for a soft bandwidth limit of 500 gigabytes through a local ISP. That comes out to 512,000 megabytes or 10,240 megabytes to the dollar. This allows me to transfer 2,560 songs for the same price as a Junior Bacon Cheeseburger off the value menu at Wendy’s: $1. I will use this my standard measurement for the rest of this article.

So far I can make the following statements concerning the costs of bandwidth:

Cost to transfer 2560 songs:

From my ISP: $1 Via SMS messaging: $15,339,212.80

But wait, there’s more!

When calculating SMS charges, most people don’t take into consideration that the message is really being paid for twice! If I send a message to another AT&T user, I am paying to send it AND they’re paying to receive it! This should probably be illegal, but that’s for another discussion.

So how much does an SMS message actually cost? Not 20 cents – but 40 cents! This doubles all of my numbers above.

Furthermore, my above figures estimate that people actually use all 160 characters available to them. Say people on average actually only used half of that (which is still being generous) – then their price of data has again doubled from the numbers I gave above!

Making adjustments for both of the above statements, we realize that our above number isn’t even close to correct! Corrected, the comparison looks more like this:

How big is that? Take all of hollywood movie box office revenues worldwide. Add all of the global music industry revenues. And add all of videogaming revenues around the world. Even all those three together, we don’t reach 100 billion.

Let’s even go more premium – how much would it cost to hand deliver data?

The U.S. Postal service is currently charging 41 cents for this privilege (hmm.. only one cent more that AT&T charges to automatically handle an SMS message). So how much written data could we send in a letter?

Google says 250 is considered the standard words per page measurement, and a sheet of paper weighs about 4.5 grams. The U.S. postal service allows your letters to weigh up to 1 ounce before charging you more, which is just over 28 grams. So you could send 6 sheets of paper, minus 1 for the envelope. If you write on both sides that gives you 2500 words (10 pages x 250 words).

According to this page, the average english word is 5 characters long. Add in a space for every word and you have 6 characters per word or 1500 characters for page for a total of 15,000 characters.

Now we are not limited in any way in the types of characters we can use, but let’s assume we are using a 256 character (8 bit) set.

Our letter therefore gives us ~14Kbytes for 41 cents. To transfer an MP3 using this method, we would be looking at about $119.95. To transfer 2,560 MP3s, that comes out to only $307,072. We would also need to take into consideration the bulk rate, but for the sake of argument (and because I don’t feel like figuring it out), let’s leave it where it’s at.

The cost would drop dramatically if we compressed the data onto, say a DVD and our cost would be something more like $1.20.

Updating our chart from above:

COSTS OF TRANSFERING 2,560 MP3s:

TCP/IP: $1 TCP/SMS: $61,356,851.20TCP/USPS: $307,072.00 (Bits written out on paper)

So getting a SMS delivered is bit for bit 200x more expensive than getting a message hand delivered to your doorstep anywhere in the United States.

What exactly justifies making SMS messages sixty one million times more expensive than ISP data and 200x more expensive than TCP/USPS? How come technology, communication, and infrastructure is getting cheaper while the costs of SMS messages are increasing exponentially? My theory: SMS messages are transfered over air made of solid gold.

edit: A few readers pointed out that from the title, this article sounds more like it’s about the carrier’s internal cost for transmitting SMS messages. For that, we turn to an informed slashdot poster:

I know the true cost of SMS messages!

I made a paper for the univeristy some years ago. The marginal cost of a SMS is 0.

They do have a little cost/opportunity. As a matter of fact SMS messages are sent on the control channel. Initially SMS were implemented in the GSM standard as a control system, just like the ICMP protocol of the IP stack. Then NOKIA though to implement a actual instant message function using SMS. The Contol channel is the channel that your mobile listens to in order to receive calls. So for receiving a SMS a control signal is sent. Since bandwidht is somehow limited on these channels it could happen that in a situation of massive usage of texting the control channel gets saturated and normal voice protocol initiation is disrupted. To prevent this carriers nowadays apply a kind of QoS delaying SMSs until there is no risk of congestion. So we can state that the marginal cost is 0 and the cost/opportunity is also 0

Another story is for the MMSs. Their cost/opportunity is even lower since they run almost enterely on GPRS thus using most bandwidht on normal data channels. Thus a MMS with pictures sounds and maybe video SHOULD cost less than a SMS.

So you wonder, why do I pay so much for a SMS or a MMS or even a Call: after the debts for the initial hardware infrastructure have been paid by the carrier you are still paying because of market segmentation (You won’t change the carrier on the fly) and a little monopoly (Almost impossible to start a new carrier from 0)..

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